The big questions the Big 6 need to answer.

Terry Macalister in the Guardian: “The bosses of the big six energy companies will appear before the energy and climate change select committee on 29 October. The powerful group of MPs, chaired by Tim Yeo, will grill them on green levies, profit levels – and why consumers face such big increases in their bills. These are the questions they should ask:”Why have you increased household energy prices by up to 10% when inflation is almost a quarter of this? The companies will argue that their costs have risen hugely because of wholesale power price increases and “green” levies. Don’t take this at face value: companies buy a portfolio of future contracts lasting many years to ensure that their wholesale supplies will meet future retail demand. If they have underestimated their needs, that is their responsibility – and they could choose to absorb that cost. No one knows how much the power companies have bought in advance – and at what price – so independent experts have to take their arguments on trust. Green levies make up only 9% of the overall bill currently, a figure that will rise to 14% by 2020.How can you say the retail energy market is competitive when more than 95% of households use of one of the big six firms? The companies always argue that they are constrained from profiteering because consumers are free to switch to one of their competitors if they don’t like price rises. Why shouldn’t the big six have their control of the wholesale power market broken up and separated, as Ed Miliband is arguing? Companies such as Scottish Power will argue that currently they are making losses in both retail supply and wholesale power generation. But that is unusual. When companies are making massive profits in power generation they always say it is illegal for them to cross-subsidise their retail side, but the fact is they can choose where to take losses. It is also worth remembering that Centrica, the owner of British Gas, spent £500m buying back its own shares earlier this year to boost shareholder returns.
The big six claim the 5% margin they earn in retail is very low. However, this figure is in line with the big supermarkets. In Northern Ireland, where prices are capped, suppliers make just 2% profit.
Small retailers say it is hard to build market share – partly, they say, because the big six have the wholesale power market sewn up. Miliband is right to pledge an end to “vertical integration”.How much money do your trading arms make each year, and why do you not openly report those numbers to Ofgem and the public? The big six will tell you that all their accounts are open to Ofgem scrutiny already, so they have nothing to lose from an open competitive review of the kind demanded by David Cameron. But they do not reveal their trading profits. In fact, the companies are reluctant to reveal even how many staff they employ in these operations – whose job is basically to speculate on market movements. Anecdotal evidence suggests this is a huge money-spinner. The MPs should push them to reveal everything about such departments, including whether they have given details to ongoing probes into gas trading irregularities.Why have many of the big six been involved in mis-selling, overcharging or other abuses, and do you think – like the banks – that you are too big to fail? There’s probably no answer to the first of these, except “sorry”. Days ago, the last of the big six, Scottish Power, paid an £8.5m fine after Ofgem found inadequate training and monitoring of staff had led to inaccurate information on annual charges, consumption calculations and tariffs being given out. E.ON, which was fined £1.7m in 2012 for overcharging, had to pay an additional £2.5m this summer to help its poorest customers meet their fuel bills this winter after it was found to be selling low-energy light bulbs it should have given away. SSE was fined £10.5m for “prolonged and extensive” mis-selling, while British Gas was fined £1m two years ago for misreporting how much energy it had supplied.
Too big to fail? Energy companies seem to be claiming, like the banks, that we need them more than they need us. They repeatedly warn that if they are not allowed to make profits they won’t invest. Yet they’ve clearly not invested enough in the past, while their dominance in the market may have deterred other potential investors.”